Forecasting with Real Business Cycle Models

Indian Economic Review, Vol. 36, No. 1, January-June 2001

Posted: 7 Jan 2003

See all articles by Christian Zimmermann

Christian Zimmermann

Federal Reserve Bank of Saint Louis; IZA Institute of Labor Economics

Abstract

Forecasting at business cycle frequencies is traditionally done with statistically estimated econometric models. This paper takes a different approach, using a calibrated dynamic general equilibrium model in line with the real business cycle literature. First attempts by others have not proved very successful, most probably because the structure of the models was too simple. We take a simple real business cycle model, the Kydland-Prescott (1982) model economy sufficiently simplified to accommodate for the availability of state variables in the data, augmented by government expense shocks. The forecasts are then evaluated with the traditional tools of the econometric forecaster. It is found that the model has potential for making good forecasts when compared to estimated models that are equally parsimonious.

Keywords: forecasting, real business cycles

JEL Classification: E17, E32

Suggested Citation

Zimmermann, Christian, Forecasting with Real Business Cycle Models. Indian Economic Review, Vol. 36, No. 1, January-June 2001. Available at SSRN: https://ssrn.com/abstract=342080

Christian Zimmermann (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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